S&P: U.S. homebuilders see more downgrades

Standard & Poor's said in a report that the credit quality of U.S. homebuilders continued to deteriorate in the first half, as home prices fell to historic rates and housing inventories remain bloated.

Since publishing its homebuilding industry report card on Feb. 25, the agency said it lowered ratings on 11 companies, bringing the total this year to 22 downgrades.

"Underlying the downgrades were large, charge-driven losses that reduced shareholder equity, raised leverage levels and eroded several companies' tangible-net-worth cushions," S&P analyst James Fielding said in a written statement. "More-vulnerable companies also faced more severe liquidity constraints."

The agency said it expects market pressure to continue.

"We believe that builders, as a group, are unlikely to report significantly improved earnings through the balance of the year because the traditionally busy spring selling season never materialized," Fielding noted.

Recent quarterly new orders were about one-third lower than they were a year ago, and builders' contract backlogs are down by roughly half, the agency noted.

"In our opinion, better-positioned builders will need to keep downsizing their inventory holdings and rationalize overhead to restore profitability, while those with weaker positions will need to generate and retain cash flow to bolster liquidity or raise equity to recapitalize overleveraged balance sheets," Fielding said.

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